How certain countries hit the "Middle Income Trap"?

VHS · May 23, 2017

"The Middle Income Trap" is a term for countries that have escaped the dire underdevelopment for a while (a few decades) and have failed to reach the "developed country" status.
Examples include the Philippines, Thailand, Malaysia, Indonesia, Morocco, Egypt, Algeria，Tunisia, Argentina, Brazil, Uruguay, Paraguay, Peru, Chile, Turkey(?)
Much of Eastern Europe is the same.
Today, $20,000 nominal GDP per capital can be the "entrance ticket" for the developed club; is this arbitrary or not?
I would like to add another category: High income developing countries, such as many Caribbean countries and OPED countries in the Middle East.
Nauru was a "tuhao or parvenu" country; with exhaustion of its phosphate deposit, it is almost bankrupt.
The question is: why these countries fail to reach the next step of development?

Ichon · May 23, 2017

Malaysia, most of those S American nations, and maybe Turkey will probably continue to develop more sophisticated economy while Morocco, Algeria, Tunisia, have a chance. The other countries there are weight down by population vs resources and current level of education. I won't comment on Thailand because that is actually one Asian nation I hardly know anything about.

fascinating · May 24, 2017

VHS, if I am not wrong I think almost all of these countries do still have fairly steady growth in GDP per capita [not capital] and so I don't think they are in any "trap".

David Vagamundo · May 24, 2017

fascinating said:
VHS, if I am not wrong I think almost all of these countries do still have fairly steady growth in GDP per capita [not capital] and so I don't think they are in any "trap".

Agree with that. Almost all the South American countries named--with which I am most familiar--are still developing, and have a shot if they don't lose their ways ala Venezuela. Brasil--I don't know. Brasil has been on the brink of development for so long that it looks likely never to get there. The current bribery scandal is not helping.

tomar · May 28, 2017

As always, lack of resources..... They have enough to reach a certain level but not enough to "move on to the next"

For example Morocco, Algeria and Tunisia have an issue with water.... In Morocco and Algeria all possible rivers have been dammed... and the key economuc indicator is % of water in dams... below 60% and its a bad year.... Likewise they lack wood and iron..... and their geographic position does not give them any particular advantage (as would be the case with Singapore which is sitting on 60%+ of the world maritime traffic)

I am not even sure these countries can be said to be "middle" income... With $4000 dollars real GDP per head or less, these are poor countries

There is really no comparing eastern Europe to North Africa

fascinating · May 28, 2017

tomar said:
As always, lack of resources..... They have enough to reach a certain level but not enough to "move on to the next"

For example Morocco, Algeria and Tunisia have an issue with water.... In Morocco and Algeria all possible rivers have been dammed... and the key economuc indicator is % of water in dams... below 60% and its a bad year.... Likewise they lack wood and iron..... and their geographic position does not give them any particular advantage (as would be the case with Singapore which is sitting on 60%+ of the world maritime traffic)

I am not even sure these countries can be said to be "middle" income... With $4000 dollars real GDP per head or less, these are poor countries

There is really no comparing eastern Europe to North Africa

I wonder if North Africa is about to became much more prosperous because of the rise in Solar photo-voltaic cells. Maybe they could generate electricity for Europe and buy water, or perhaps operate large-scale desalination using solar energy?

dagul · May 29, 2017

GDP for the Philippines is not accurate because large percentage of the government coffers are in the pockets of its politicians and their cronies. I think Swiss accounts and other international banks should first be scrutinized, but that is not going to happen.

tomar · May 29, 2017

fascinating said:
I wonder if North Africa is about to became much more prosperous because of the rise in Solar photo-voltaic cells. Maybe they could generate electricity for Europe and buy water, or perhaps operate large-scale desalination using solar energy?

Morocco is trying to go that way... But ironically for solar energy you also need a lot of water (as for any industrial activity)... In any case if you have to build power + dessalination plants to get water, your water will be expensive and you will never be able to compete with countries who get it for free as it literally falls from the sky

Vast Moroccan solar power plant is hard act for Africa to follow | Reuters

dagul · May 29, 2017

^On the other hand, if your water source falls from the sky, you also spend so much for the maintenance of those solar cells specially for tropical nations that are frequently visited by typhoons or hurricanes.

tomar · May 29, 2017

dagul said:
^On the other hand, if your water source falls from the sky, you also spend so much for the maintenance of those solar cells specially for tropical nations that are frequently visited by typhoons or hurricanes.

The point is, if the water falls from the sky, you dont need dessalination plants

dagul · May 29, 2017

tomar said:
The point is, if the water falls from the sky, you dont need dessalination plants

Indeed, but you may not know the extent of the wreckage of typhoons and hurricanes. You might be building an entire plant from time to time.

ayasachan · May 29, 2017

dagul said:
GDP for the Philippines is not accurate because large percentage of the government coffers are in the pockets of its politicians and their cronies. I think Swiss accounts and other international banks should first be scrutinized, but that is not going to happen.

GDP isn't accurate if it shows miscalculated data. Corruption is a different story.

anmol · May 29, 2017

I think a lot of the countries find it difficult to move from a resource based or manufacturing based systems to high value service based economies. The problem with a lot of middle income countries is that they really to much on extracting resources rather Human resource development. I think there are two countries that can beat the middle income trap one is china other is India. India even with all the poverty and low level of development has a thriving startup culture and service industry which reallies heavily on IT engineers and Software Engineers, Pharmaceuticals and Heavy metal Engineering. China has a thriving startup culture which is hardware based and excellant research output.

delta1 · May 29, 2017

It's not a trap per se. These countries have reached a certain level of development and they are unwilling or unable to undertake the reforms needed to carry it further.

tomar · May 29, 2017

delta1 said:
It's not a trap per se. These countries have reached a certain level of development and they are unwilling or unable to undertake the reforms needed to carry it further.

Its not about reforms.... Its about resources.....

You cant buy a $5 million dollar home if you earn $1000 per month... Likewise a country without enough resources cant generate enough income for its citizens.... its very simple really...... exception will be small fiscal paradises who thrive on tax evasion

delta1 · May 29, 2017

tomar said:
Its not about reforms.... Its about resources.....

You cant buy a $5 million dollar home if you earn $1000 per month... Likewise a country without enough resources cant generate enough income for its citizens.... its very simple really...... exception will be small fiscal paradises who thrive on tax evasion

Surprisingly enough, there is no correlation between natural resources and development.

robto · May 29, 2017

anmol said:
I think a lot of the countries find it difficult to move from a resource based or manufacturing based systems to high value service based economies. The problem with a lot of middle income countries is that they really to much on extracting resources rather Human resource development. I think there are two countries that can beat the middle income trap one is china other is India. India even with all the poverty and low level of development has a thriving startup culture and service industry which reallies heavily on IT engineers and Software Engineers, Pharmaceuticals and Heavy metal Engineering. China has a thriving startup culture which is hardware based and excellant research output.

Do you think China will fall into the middle income trap after its economic growth ends?

anmol · May 29, 2017

robto said:
Do you think China will fall into the middle income trap after its economic growth ends?

No I don't. China has a very important thing working for it a very large internal economy and if done properly they can foster extremely innovative market. They have already done such things in Tech and Finance. Infact China is miles ahead of even USA interms of modernity of its financial tech environment. They have instantly adopted online trading, blockchain technology and bitcoins. I believe China will break the middle income trap. A lot of countries that fall into middle Income trap are generally countries that try to depend heavily on resource extraction to run their economy. China is a very people driven economy, It depends heavily on increasing the utility of their workers.

robto · May 29, 2017

anmol said:
No I don't. China has a very important thing working for it a very large internal economy and if done properly they can foster extremely innovative market. They have already done such things in Tech and Finance. Infact China is miles ahead of even USA interms of modernity of its financial tech environment. They have instantly adopted online trading, blockchain technology and bitcoins. I believe China will break the middle income trap. A lot of countries that fall into middle Income trap are generally countries that try to depend heavily on resource extraction to run their economy. China is a very people driven economy, It depends heavily on increasing the utility of their workers.

Having a good economy, technology or innovative market doesn't mean that the system is inclusive enough in order for the population in general to rip the benefits of the market economy. China is a very corrupt country by international standards and its economy is still very much controlled and guided by the government in which it is still in the hands of a small political clique.
Those factors can completely jeopardize economic prosperity in the long-run.

dagul · May 29, 2017

ayasachan said:
GDP isn't accurate if it shows miscalculated data. Corruption is a different story.

I will explain to you the reason of corruption being my reason of inaccuracy of GDP. Among the basis for the determination of GDP are taxes. You see, the Philippines has very bad tax system and there are a lot of business people who are not paying tax. The infrastructure projects of the government and the government services which are likewise the basis of output production fails to come up with the way it should generate them because more than half of the money of the government are in the pockets of the politicians and their cronies.

So that becomes inaccurate GDP due to corruption.

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How certain countries hit the "Middle Income Trap"?

VHS

Ichon

fascinating

David Vagamundo

tomar

fascinating

dagul

tomar

dagul

tomar

dagul

ayasachan

anmol

delta1

tomar

delta1

robto

anmol

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